South Korea’s largest steelmakers to slash scrap buying amid dismal steel demand

South Korea’s two largest steelmakers plan to slash their intake of import scrap over the coming months amid weak finished steel demand, market sources have told Fastmarkets.

Major steel producer Posco will halt its buying of import and domestic ferrous scrap for the next two months, according to four sources dealing in the South Korea scrap market.

While overall steel demand is struggling in South Korea, special and high-grade steel demand is particularly coming under strain, which has led to Posco’s cut in scrap buying, according to one Japanese scrap trader.

Posco management have publicly discussed the need to reduce overheads in recent months while the spread of Covid-19 has ravaged South Korean steel markets. That follows a disappointing 2019 for Korean steel mills when crude steel production fell by 1.4% year on year.

South Korea produced 11.16 million tonnes of steel in January-February 2020, down by 3.1% year on year, according to the Korea Iron and Steel Association (KOSA).

“To overcome the difficulties of this year, Posco is to pursue intense cost-cutting, market-oriented technology innovation, and company-wide quality innovation,” Jeong-Woo Choi, Posco chief executive officer, said in late March.

Fellow producer Hyundai Steel is also reducing its steel output in the second quarter of the year and is cutting scrap purchases, Fastmarkets was told by market sources.

So bad is special steel demand in South Korea, that one Japanese scrapyard source said Hyundai is also considering stopping production at its special steel and hot-rolled sheet-producing electric arc furnaces (EAFs) in Dangjin.

But one market source told Fastmarkets that all Hyundai steelmaking sites continue to produce, though at a lower capacity utilization.

The Dangjin mill is a major consumer of Shindachi busheling, and the scrapyard source said that lower demand for Shindachi from the site could allow to South Korean mills to reduce their bid prices for Shindachi.

Lower Shindachi generation levels at automotive plants has meant that the export premium for Shindachi over H2 heavy scrap has increased in recent weeks to ¥3,500 ($32) per tonne, compared with ¥2,500 per tonne previously.

Both Hyundai and Posco are major buyers of South Korean domestic scrap, while Hyundai is also a major scrap importer from origins such as Japan, the United States and Russia.

Low demand from South Korea has weighed heavily on Japanese scrap prices in recent months. Fastmarkets’ price assessment for steel scrap H2 Japan origin import, cfr main port South Korea was ¥21,500-22,000 per tonne on April 9, down by ¥2,000-2,500 per tonne since the price was launched on March 20.

South Korea purchased just 556,708 tonnes of ferrous scrap from Japan in January-February 2020, down by 33.4% year on year from 835,843 tonnes over the same period last year, according to Japan customs statistics.